The real estate asset should be depreciated on the Sch C, regardless of any paperwork form over substance creations. 

I have a podcast - Pillars of Wealth Creation, that has been running for over 3 years that airs 2+ times/week.

That’s a forced value creation that will far exceed any appreciation you can hope for or any cash flow you could potentially extract from just a a single family home.Plenty of opportunities here: (1) sell the lots to raise cash and pay off your loans on your existing house to get free and clear property for a long term hold, (2) Sell the front house keep the lots for long term appreciation (they will appreciate at the same rate as houses nearby), (3) Trade a lot to a builder to get him to build a small home on the back lot for you at a very low cost, (4) Sell some of these lots with owner financing for cash flow...

This is for a commercial note creation 1st lien position.

Take a look at your goals but debt will help with long-term wealth creation and paying in cash will help with short-term cash flow. 

Being well capitalized allows you to hold the property for some length of time, which for a lot of investors is the name of the game, ie longterm wealth creation.

Seeing as your diving down the rabbit hole of psychic powers to say what I would have said, if asked, back when, if's and butt's....

If there really is only one option, you may want to explore ways to reduce your trash creation in order to save some $...

In my opinion, I would not lose sleep over the creation of the LLC at this time.

Then dig deeper into those listings to find additional sources of equity creation, like: a garage that can be converted to an ADU down the road, a decrepit but easily improvable facade, a large 2-bedroom that could be converted to a 3-bedroom down the road, etc.Where in LA do you live and work?